HOW TO REDUCE BENCHMARK RISKS

Q&A is your opportunity to get your questions answered by industry leaders

How have plan sponsors and portfolio managers historically used allocations to asset classes and benchmarks within those classes as proxies for diversification and risk? In the future, will more portfolio managers use underlying risk parameters to both build and manage portfolios?

Freeman Wood is a principal and director of the Americas team within the Mercer Sentinel Group, a specialist investment operations consulting team in Mercer's Investments business talks to Fund Fire, where a full version of this can be read.

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 ARE YOU READY FOR DODD-FRANK?

In the wake of the recent financial crisis, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law in July 2010. The act addresses multiple themes that regulators believe will help regain and support stability in the financial marketplace by tackling systemic risk, reining in derivative products, improving consumer protection and increasing public company disclosures. The act affects all federal financial regulatory agencies and most facets of the financial services industry.

Some of the changes have an impact on oversight structures, reporting and trading operations and require that asset managers, brokers and custodians invest substantially in technology and counterparty oversight.

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THE COSTS OF SWITCHING INVESTMENT MANAGERS

Institutional investors spend a great deal of time assessing their strategic choices and investment managers in order to maximize portfolio returns relative to risk taken. This review process leads to periodic changes in investment manager lineups and transitions to new managers from legacy mandates. Too often, though, investors don't spend enough time understanding and managing the transition costs and risks.

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Mercer Sentinel Group is a dedicated specialist global business group within Mercer Investments focused solely on evaluating and advising clients on non-financial risks, primarily operational and implementation risks. As experts with a fairly narrow focus, we work from five operating centers – Chicago, Hong Kong, London, Singapore and Sydney. We cover a variety of consulting areas, including custody, fund administration, prime and standard brokerage, transitions, transaction execution and related costs, securities lending, and operational risk assessments.

Our global knowledge and local expertise enable us to integrate local market experience with cross-border understanding. In contrast to mainstream investment consulting, our team has extensive experience coming from custody, audit, hedge fund, legal, compliance and regulatory backgrounds. Our combined experience makes us highly qualified to provide technical advice.

OTC REGULATIONS

OPERATIONAL DUE DILIGENCE - THE NEW INVESTMENT DECISION

Ben Gunnee - European Director of the Mercer Sentinel Group

Julian Mant - Mercer principal

The financial scandals during late 2008 left many investors aware that financial losses at investment managers can arise from multiple sources, including poor operations, lapses of internal controls and sub-standard execution. As a result investors are increasingly using operational due diligence as part of the investment manager hire and fire decision.

As the prominence of operational due diligence has grown so has the confusion to what actually constitutes operational due diligence. The discussion recorded on 16 March focused on exploring:

• some of the myths that surround operational due diligence
• what we believe constitutes a best practice framework
• highlighted the key questions every investor should be asking their investment manager to avoid operational and execution pitfalls

Download transcript (Duration 57:24)

ABOUT MERCER SENTINEL®

The Mercer Sentinel Group is a specialist investment operations consulting team within Mercer Investments. Our dedicated consultants serve clients throughout the world from regional hubs in Chicago, London, Singapore and Sydney. Each year we conduct over 200 assignments related to our area of expertise. 
As a group of experienced specialists who take the time to understand your business together with our cutting-edge proprietary approach. Mercer Sentinel have built a global reputation for excellence in investment operations and implementing advice. We deliver tailored, robust and innovative consulting solutions intended to improve investment performance and governance, delivering efficiencies and savings.